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David P. Goldman
Let's see: US
financials are
trading exactly
where they were
in February 2010
while Europeans
are 25% lower.
Doesn't sound too
global to us
The divergence is
long overdue
Although the trend has diverged between European and American financials, the
correlation of daily returns remains extremely elevated.
The stock market is still chasing the European rabbit down holes. That expresses the
same incapacity to process information that we observed when the sovereign
downgrade provoked a panic about US equities.
In purely economic terms, the impact on the US economy from the European crisis is
likely to be very small. US exports to Europe comprise 18% of total exports, but a
great deal of that reflects transshipment to other markets. Netherlands, for example,
bought $28 billion of American goods during the January-August period, almost as
much as Germany's $32 billion, but almost all of that reflects re-exports. Italy absorbs
for 1% of total US exports, and the rest of the southern Europeans reflect rounding
error. Even an extremely steep European recession would reduce American exports by
a few percentage points at most.
The American financial sector is starting to eke out earnings again. Stripped of the
smoke and mirrors (such as profits arising from revalued liabilities due to a higher cost
of term financing), the operating earnings of the S&P financial sector don't look too
terrible.
Source: S&P
Among the big banks (BAC excepted, due to special charges last quarter), the worst
American bank has an inherently higher profitability than the best continental
European bank.
We believe in the
boom of 2013